**As seen in Risk In The Week report 04/20/24, subscribe at cablefxm.co.uk/reports
A recent hike in Japanese union wages pushed the odds of a BoJ monetary policy shift, the central bank raised rates in March to end NIRP and YCC. The BoJ had not hiked its policy rate since 2007 and signaled that upward price risks could result in further increases. The market seemed unconvinced of a serious tightening cycle by the BoJ so the focus will lie on communications as the central bank might want to reassert a hawkish stance. Recent data prints saw Japan's March core and supercore CPI metrics rising by 2.6% and 2.9% on the year, respectively. While the disinflation progress remains intact, the figures show prices above target.
Moving into short-term dynamics, the market might also pay attention to any comments on the recent yen slide as the pace of depreciation could be undesired by the Japanese authorities and push inflation higher. Strategists at BofA said that any intervention in FX could be an opportunity to buy USD/JPY at better levels, they added that a defensive currency program would not have much effect on the yen. BofA noted risks of USD/JPY rising to 165.0 but this is not their base case, they forecast the cross ending the year at 155.0. Goldman Sachs pencils the dollar trading at 150 to the yen in 12 months, they noted that given the solid global growth, upbeat risk sentiment, and gradual policy adjustments, they do not see the Japanese currency strengthening materially. However, the desk at HSBC warned that a more hawkish tone from the BoJ could turn the way for traders and cause a short squeeze in the yen.
